Worst Case Scenario For Ford

[7Mary3]

The very worst thing that can happen to Ford right now would be, without question, a G.M. failure. It would be devistating for 3 reasons. First, as we have discussed here before, would be the overnight failure of most every key U.S. auto parts supplier. Ford would no doubt face parts shortages so severe that production in Ford's plants could grind to a halt within a week. Finding offshore alternate suppliers and getting tooling moved would be very expensive and time consuming. Money and time Ford does not have now. Second reason this would be a catastrophy would be a Wall Street's loss of confidence in U.S. auto manufacturing. A G.M. backruptcy would have a very negative affect on what's left of Ford's share price, pushing into 'penny stock' territory. The expectation would be that Ford would follow G.M., and these situations often become self-fullfilling. Third reason it would be over for Ford would be a loss of consumer confidence. Many car buyers would be afraid of Ford going out with G.M. (unfortunately a likely situation) and would probably shun buying Fords for fear that warranties would not be honored and parts would not be available. So, be very careful what you wish for......

[battyr]

With a GM failure, thousands of people will lose their jobs. They will blame the Japanese for this and will commit to only buying cars from Ford. Ford will be the only true large American auto maker. If Ford can prove they are able to match Toyota in quality, great.

 

Hundreds of suppliers will go into chapter 11. Many will be reorganized within weeks and be running under the courts. Some suppliers will get government money. Some will be bought out by others. Some supply Toyota and Honda. Toyota could buy out the asset to keep production going.

 

Some of Fords plants will have to be shut down for a few week. So would every other auto company.

 

Without GM, Fords sales could double. Ford would hire some new young employees. This would reduce the cost of all the retired employees when spread amoung the new larger and younger work force.

[LSFan00]

Battyr has a pretty good idea of what will happen I think.

 

Now, when a hundred thousand fleeing rustbelters land/crawl/drive in Dallas in 2 weeks I will be upset that RJ was right, though. Hell, we're still full of the NO riff raff around here. They really do wreak havock on city/state budgets. I've considered moving to the above-sea level NO suburbs in protest.

[7upMustang]

I think Ford is really being hurt in this by being linked to the other big 2. When you watch the news, they make no distinction between the US automakers, like they are one big company. In fact, someone on CNN was complaining about GM selling Tahoes using a $2.99 gas gaurantee when gas was $4.00. No one mentions it was Chrysler who did that and Ford and GM had nothing to do with it. IMO Ford has by far done the most to make themselves a viable CAR company. I mentioned in another thread that since 2005 they have brought out the all new 500 and Fusion, and refreshed the 500, Focus (twice), and are ready to release the refreshed Fusion. Sounds like they are doing their best to keep their car business going. The only thing they are missing relative to the Japanese competition is the B-class car. I am sure they are working to bring that out as fast as possible.

GM seems to be trying, but just has too many redundant cars and doesn't seem to work logically. Why when they did the all new Malibu did they not have an all new G6, 9-3, and Lacrosse to go with it? They all ride on the same platform I believe. Maybe the Aura too? I am glad to see that Ford at least updated the Milan and MKZ along with the Fusion. And the Sable along with the Taurus. Chrysler needs to do something but I don't know what. I do not know GM and Chrysler the way I do Ford.

[mnm]

With a GM failure, thousands of people will lose their jobs. They will blame the Japanese for this and will commit to only buying cars from Ford. Ford will be the only true large American auto maker. If Ford can prove they are able to match Toyota in quality, great.

i agree somewhat. i think there are ALOT of americans who (myself included) would not, never ever, no how, no way buy a foreign branded car. and i do think would be a backlash against toyota and the others. Do you think anyone would go to a NASCAR race to watch 25 Camrys racing each other? And step outside of New York and L.A., there's a whole lot of good 'ol boy types with Ford tattoos or the Chevy bowtie tattoo. you really think they will go buy a Tundra or a Titan? Mulally said the BIG3 share 70% of the same suppliers. thats alot of overlap to overcome. but I have to assume Ford has people working right now developing backup plans for a gm bankrupcy

[RichardJensen]

Many will be reorganized within weeks and be running under the courts.

Who will they get 'debtor in possession' financing from?

[BORG]

Keep in mind, Ford is lobbying for GM...not itself. They have said they don't need the money, but they need GM solvent in order to build cars.

[7upMustang]

Keep in mind, Ford is lobbying for GM...not itself. They have said they don't need the money, but they need GM solvent in order to build cars.

Doesn't matter to the general public, to them Ford is GM is Chrysler.

[Extreme4x4]

The only good news, in this mess, is that Ford has kept its head down pretty good. Every one of the 5 million articles on the subject either have GM in the title, or Detroit 3.

 

Much of the buying public is too stupid to know who the Detroit 3 is.

[7Mary3]

Keep in mind, Ford is lobbying for GM...not itself. They have said they don't need the money, but they need GM solvent in order to build cars.

 

Right. And care to guess what happens if Ford can't build cars?

[Footballfan]

i agree somewhat. i think there are ALOT of americans who (myself included) would not, never ever, no how, no way buy a foreign branded car. and i do think would be a backlash against toyota and the others. Do you think anyone would go to a NASCAR race to watch 25 Camrys racing each other? And step outside of New York and L.A., there's a whole lot of good 'ol boy types with Ford tattoos or the Chevy bowtie tattoo. you really think they will go buy a Tundra or a Titan? Mulally said the BIG3 share 70% of the same suppliers. thats alot of overlap to overcome. but I have to assume Ford has people working right now developing backup plans for a gm bankrupcy

 

I agree with you 100 percent. These lowlife senators from the south- Shelby, et. al. - think that Midwesterners are going to just buy a Texas or Alabama-made Hyundi, Toyota or Honda after they threw 6 million people and thier jobs under the bus? I will make it a point to NOT buy anything that is made in their state by a foreign automaker. In fact, I will intentionally buy something made overseas; let's see how they like it when their constituents are thrown out of work. After the taxpayer is forced to pay for the welfare and other social costs of a Big Three collapse, I am sure there's going to be a great backlash against Republicans and foreign automakers.

Edited November 19, 2008 by Footballfan

[RichardJensen]

a great backlash against Republicans and foreign automakers.

In the interest of fair distribution of anger...

 

"Their board rooms in my view have been devoid of vision," said Sen. Christopher Dodd, D-Conn. "They have promoted and often driven the demand of inefficient, gas guzzling vehicles, and dismissed the threat of global warming."

 

What's that "D" stand for?

[timmm55]

I did hear Anderson Cooper on 360 last night.....he said Ford has some of their more efficient cars coming from Europe, and that Ford was in a different position than GM or Chrysler.

 

So at least some of the talking heads get it.

[lfeg]

Who will they get 'debtor in possession' financing from?

 

Correct Richard. Also, many suppliers are running on fumes already. Some have already been through bankruptcy and are on the brink again. Who wants to take a chance on a 2 time looser? Some are currently in Chapter 11, and a failure of GM would just push them into Chapter 7. All of which is very bad for Ford. If anyone thinks Ford's cash burn rate for the last quarter was high, just imagine what it would be if they couldn't get the parts necessary to build the vehicles that they are still selling.

 

Again, this industry is like a house of cards supported on a base of 3. Remove one, and the whole thing falls apart.

[CSMJ]

I seen a poll that said 80% of GM/Ford buyers said they would buy from the company that was left if 1 of them went under! So maybe pickup sales would sky rocket to 2004 levels!

[battyr]

Who will they get 'debtor in possession' financing from?

 

Cash flow from sales to other auto companies. In many cases, this is all that is needed. Atleast for the first 6 months.

 

Ford has given cash to suppliers in the past to keep them from failing. I think the government should extend some money some how.

 

In many cases, even the creditors will give them some money. Here is how it works. Give us money for the next months purchases and company will be able to continue under CH. 11. Bank could get half their money back eventually. Or Give us nothing. Company goes into CH. 7 and in todays market, the Bank gets nothing.

 

After Ch. 7, is the bank going to sit on manufacturing equipment and let it rust when there are customser than need goods made from the machines?

 

Think about, you have good machines that are completely written off. You have a skilled labour force, with no pension obligations, and no contract wages. You have the rights to designs and customer that want the product. You have a lot of unfinished inventory that only has value if it its finished. You can have a fire sale and get nothing. Or you can keep the plant going and selling to someone at a huge discount. The banks profit more by selling the whole company at 5 or 10 cents on the dollar, than to have a fire sale.

 

If Toyota needs supplies from a bankrupt supplier. I think they will buy the company if the can get it for 90% off the cost and have no debt obligations. Toyota only wants companies that have Toyota trained employees, so they likely sell the company off several years later at a profit.

 

With GM filing Ch. 7, IMHO Ford truck sales should double, car sales increase about 25% to 75%. Ford has cash. They can't afford to shut down. If Ford thinks they will get sales from GM buyers, they will buy suppliers at a huge discount, just to keep supplies moving.

[lfeg]

A chapter 11 filing does not automatically end all union contracts. In many cases the court will not allow the voiding of union contracts. Chapter 11 is not a magic wand - just go back about 20 to 25 years and see what was done in the steel industry. More than once companies came out of Chapter 11 in very poor shape, to fail again or be sold and cut up. A Chapter 11 filing by any of the detroit 3 would be a watershed event that would have massive consequences for our society.

[battyr]

A chapter 11 filing does not automatically end all union contracts. In many cases the court will not allow the voiding of union contracts. Chapter 11 is not a magic wand - just go back about 20 to 25 years and see what was done in the steel industry. More than once companies came out of Chapter 11 in very poor shape, to fail again or be sold and cut up. A Chapter 11 filing by any of the detroit 3 would be a watershed event that would have massive consequences for our society.

 

True. If a company has a way of surviving, cash flow, they will go Chapter 11 and the Union stays in place.

 

If they don't, then the creditors will force Chapter 7. I don't know what happens with the union contract while the banks runs the company. When they sell it's assets, I would think any employees that go with the factories, would have to take the rules of the new owner. Can anyone confirm what happens with chapter 7?

[Deanh]

A chapter 11 filing does not automatically end all union contracts. In many cases the court will not allow the voiding of union contracts. Chapter 11 is not a magic wand - just go back about 20 to 25 years and see what was done in the steel industry. More than once companies came out of Chapter 11 in very poor shape, to fail again or be sold and cut up. A Chapter 11 filing by any of the detroit 3 would be a watershed event that would have massive consequences for our society.

what if they gave the middle finger to all the expert Senators currently poo poohing them, and ALL agreed to announce Chapter 11 at the same time.............

[RichardJensen]

Cash flow from sales to other auto companies. In many cases, this is all that is needed. Atleast for the first 6 months.

 

Ford has given cash to suppliers in the past to keep them from failing. I think the government should extend some money some how.

 

In many cases, even the creditors will give them some money. Here is how it works. Give us money for the next months purchases and company will be able to continue under CH. 11. Bank could get half their money back eventually. Or Give us nothing. Company goes into CH. 7 and in todays market, the Bank gets nothing.

 

After Ch. 7, is the bank going to sit on manufacturing equipment and let it rust when there are customser than need goods made from the machines?

 

Think about, you have good machines that are completely written off. You have a skilled labour force, with no pension obligations, and no contract wages. You have the rights to designs and customer that want the product. You have a lot of unfinished inventory that only has value if it its finished. You can have a fire sale and get nothing. Or you can keep the plant going and selling to someone at a huge discount. The banks profit more by selling the whole company at 5 or 10 cents on the dollar, than to have a fire sale.

 

If Toyota needs supplies from a bankrupt supplier. I think they will buy the company if the can get it for 90% off the cost and have no debt obligations. Toyota only wants companies that have Toyota trained employees, so they likely sell the company off several years later at a profit.

 

With GM filing Ch. 7, IMHO Ford truck sales should double, car sales increase about 25% to 75%. Ford has cash. They can't afford to shut down. If Ford thinks they will get sales from GM buyers, they will buy suppliers at a huge discount, just to keep supplies moving.

Huh? Do you understand how bankruptcy works?

 

First of all: GM owes its suppliers billions of dollars.

 

This makes GM's suppliers creditors. Unsecured creditors.

 

This means that if GM files Ch. 11 these suppliers who have incredibly tight margins will immediately end up in Ch. 11 as well. Why?

 

Because their status as unsecured creditors puts them at the end of the line when it comes to carving up GM.

 

They will never see the billions of dollars that GM owes them. This, in effect, ruins them. They're living 'paycheck to paycheck'. You cut out the money that GM owes them, and it IS in the billions of dollars, and they're out of business.

 

Now, is it your assertion that the government should prop up hundreds of suppliers instead of propping up GM?

 

------

 

Furthermore, why do you assume you know more about this industry than Alan Mulally?

[lfeg]

True. If a company has a way of surviving, cash flow, they will go Chapter 11 and the Union stays in place.

 

If they don't, then the creditors will force Chapter 7. I don't know what happens with the union contract while the banks runs the company. When they sell it's assets, I would think any employees that go with the factories, would have to take the rules of the new owner. Can anyone confirm what happens with chapter 7?

In Chapter 7 no one runs the company. It ends, and anything that can be sold is, with the court using the proceeds of the sale to pay off the secured creditors first, then the unsecured creditors. Sort of like having your house foreclosed. Now, an entire division could be sold, but the new owner would have to negotiate an agreement with any union that the workers have, or could just fire everyone and start over. In a UAW shop, that would probably start a labor war that would doom the enterprise anyway.

[mettech]

what if they gave the middle finger to all the expert Senators currently poo poohing them, and ALL agreed to announce Chapter 11 at the same time.............

 

It would be the best thing that could happen to the American 3.

[lfeg]

what if they gave the middle finger to all the expert Senators currently poo poohing them, and ALL agreed to announce Chapter 11 at the same time.............

 

That would be very interesting, especially if they said their first petition to the court would be to dump all pension obligations onto the PBGC. Then Congress would have to deal with bailing out the PBGC while dealing with the wrath of the UAW for letting the whole thing happen.